The VARBusiness Interview: Quantum CEO Rick Belluzzo

VARBusiness

VB: You have said you weren't necessarily interested in the LTO business. What led to the change of heart?
Belluzzo: We're interested in the tape drive business and have been historically very focused on DLT. I think we have concluded that to get critical mass, to get volumes and breadth, we needed to embrace other formats. There used to be a time when tape libraries were LTO-only. So we embraced new formats in our automation products with LTO. Recently we started selling alternate formats for media to supplement our media business, so we've been moving down this path. This is, of course, a significant move that we think gives us broader market coverage and can better serve customers, be [them] distributors, end users or OEMs, with a broad range of products in one place to come.

VB: Do you see LTO emerging as the dominant tape format moving forward?
Belluzzo: We believe and acknowledge that the world is multiformat. We have recently done a lot of work to redefine the role of tape with our DLT products with things like DLT Sage and DLTIce and a new road map that aggressively takes the opportunities to build greater capacity. As it stands today, we think that LTO and the DLT lines will co-exist because they are defined a bit differently going forward. I don't know how customers will choose relative to what their particular needs are. We made the move in DLT because we believe that performance is delivered by disk and capacity cost is delivered by tape. So we've pushed to a greater extent, and we will continue to improve performance, but to a greater extent we've focused on increasing capacity and we are going to continue to improve performance, but to a greater extent we've focused on increasing capacity so that it really is a cost leader because of the demand of increased storage. It's all orchestrated and positioned in our mind, and we're not predicting what's going to be dominant and what's not going to be dominant.

VB: Since there is some overlap and they were competing formats, how will you position them going forward?
Belluzzo: We see that the LTO road map is very much about improving performance, transfer rates and capacity. Our road map increases capacity much faster and a transfer rates at a slower rate. So we've made different choices, and we would position it that way for customers. If customers embrace putting disk as a buffer in front of their library, we would probably say that the DLT solution is better. If not, if they're relying on tape exclusively, then LTO may fit in. It depends on what their installed base is and what kind of compatibility they want. There's technologies like DLT Sage, which is very much focused on manageability and predictive maintenance, so there's a lot of elements -- we'll have to work that out more as time goes on.

VB: What impact will this have on the two companies' respective channel programs?
Belluzzo: We'll go through integration planning. Our intent, though, is to bring together all of our assets to deliver channel partners, OEMs, end users, every constituency we have of customer with an integrated program ... We'll get some feedback from channel partners on what elements they would like to see in a program that embraces all of those products and technologies and gives them simplicity in terms of doing business. But give them more product and more value.

VB: So is it fair to say that a revamped channel program under the combined companies will likely ensue?
Belluzzo: I don't know how strongly I'd use revamped, but we will try to pick the best of what we can offer and deliver something that's really targeted to the customers. We're not interested in disrupting the market and disrupting our momentum. It's an important time. We put a lot of work in our channel program as of late, and we really want to continue to build momentum around it.

VB: Certance, of course, has been competing in the LTO space against a much more formidable rival in HP and IBM. Do you feel prepared to take them on?
Belluzzo: We've been competing with everybody with the DLT technology. We're positioned with all of the system OEMs, and we've got good feedback that having the LTO product line will actually help that process.

VB: How critical do you see this acquisition toward [overall] growth?
Belluzzo: There are segments of the markets that are good growth opportunities. LTO has been a good growth segment, their media has been a good growth segment, there are just a number of things we see within the company that could really improve our relative growth position going forward.

VB: How about toward helping Quantum return to overall profitability?
Belluzzo: It's a profitable business to start with, and secondarily we have opportunities for synergy to be able to improve performance for Quantum as a whole. Critical mass is important because of the volume leadership of Certance ,and we're a midrange leader in tape, so we think by bringing these together we can get improved economics out of everything we do -- whether it's channel programs, support, manufacturing, repair -- all of those things can be done more economically by combining the businesses.

VB: What other growth areas do you see focusing on?
Belluzzo: For Quantum, we're focused on continuing our platform transition and tape automation systems. We recently introduced our new enterprise product, and we're continuing to build out that product line. We think there's growth in our disk-based products, which tripled this quarter over last quarter. And there are components of tape drives that have good opportunities for growth as well. So we think there are some pieces of the market that remain challenging, but we believe we have a growing product line in terms of its competiveness.

VB: What are some of those challenging things that you see?
Belluzzo: It's about continuing to move down a pretty ambitious plan for the company, in terms of products, in terms of now integrating an acquisition. We have a lot of things to do. We think it's all within our power to turn that into a good result. The market is challenged, but we think the whole principal of backing up, recovering and archiving data, compliance, all of those things are going to be growth areas, areas people are interested in and want to invest in. And based on that, we think that the market segment will be OK.

VB: Is the rapid growth of disk to tape backup actually benefiting the tape industry?
Belluzzo: We've always said the frustration people have with tape in terms of its backup performance and a variety of things, by integrating disk as part of the solution, actually tape is better. We really believe that. In fact, we are seeing more and more of our disk based [DX product] selling alongside our tape libraries, and people are looking at these things as integrated solutions with tape. They get the capacity, removability and cost with disk being the performance solution. I think that tape gets a lot more efficient with a virtual tape unit as part of the system.

VB: Given what's going on in the disk drive business these days, are you glad that Quantum exited that space?
Belluzzo: I don't know if there is an easy business. Disk drives are clearly a challenge, and we made a decision because we felt that it was important for the industry to consolidate to gain economies of scale. So I'm not envious of that nor do I wish I was in the disk drive business, but I would certainly like to see us get more energy in the market for the products that we do well with. It's generally a difficult environment.

VB: Do you see doing other acquisitions?
Belluzzo: I don't know. I think this will keep us busy for a while, and we think we are in a good position to integrate something like this. So I don't have any immediate ideas of what we'll do next.

VB: What was the inflection point that led you to decide you needed to be in the LTO business?
Belluzzo: We made the decision we needed to grow our position in tape drives. Doing that with LTO was certainly one way of doing that. We probably over the past six months started to realize the economics were going to require us to find a way to do that. If you look at our results, you'll see growth in a lot of segments. We really have not had the growth that we've needed to have in tape drives, so we needed to find a way to solve that problem, and this is a way we think was very effective.

VB: At what point do you see having consistent year-over-year profitability?
Belluzzo: We haven't predicted that yet. We were built up from a lot of acquisitions. When we look at our results, we exclude things like amortization and some of the restructuring work we're doing. If you do that, we've been hovering around break-even now for a few quarters. We continue to make improvements in our fundamentals and hope that through this acquisition, we will get to a path where we can have some growth as well as consistent profitability. It depends on the effectiveness of the integration process and what gains we think can be obtained.

VB: Once the acquisition is complete, do you see more, less or the same revenues coming from the reseller channels?
Belluzzo: There will be more from the channels. We've been investing more on channels more recently without the acquisition. With the acquisition, there is really a higher percentage of channel business that comes from Certance. So the channel will become more important to us, and we will become more important to the channel.

VB: Can you elaborate on that?
Belluzzo: More of our business will come from the channel. A lot of our future growth potential will use the channel and build our branded business around that. And two, being a larger tape drive player and having a broader set of products, we think that we can be a more critical partner for channel partners who can go to one company and get a broad range of solutions with a good brand and a good set of programs behind it.

VB: Are you currently recruiting more channel partners?
Belluzzo: We've always been in building mode, especially internationally, but with some of our enterprise products we have more of our enterprise products especially worked to recruit, develop and train a bigger base of more capable VARs who can also focus on backup, recovery and archive disk-based products, integration with tape. All of these things are increasingly channel integrated types of solutions that people need to deliver.

VB: You've been on the job for two years -- how do you feel about what you've accomplished at this point?
Belluzzo: I'm never totally satisfied with myself. I think we've done a lot to position the company in terms of bringing the company together in an integrated organization, improving our competitiveness, introducing new products that focus on backup and recovery archives, becoming more competitive in a lot of the things that we needed to do. We are going through a really significant transition, from being a large hard drive company to doing what we're doing today. I hope to say we've made it through that transition very successfully and we came out a leader, a leader that's growing, profitable, has a good market position and is relevant in the industry. We are not finished with that journey yet, but I think we are well-positioned to get there.

VB: Anything you would have done differently over the past two years?
Belluzzo: Probably a lot of things, but nothing that's major. Every time you go through a situation like this, you have to push yourself to move more quickly on actions and decisions. There are certainly a few things I'd like to have moved more quickly.

VB: Such as?
Belluzzo: Our organization and sales model. After a year, we decided to bring that together and integrate our channel programs with drives and systems and everything. I'm happy we did that -- I wish I would have made that decision earlier and had that behind us and been able to get the improved position and effectiveness that I think we're trying to achieve now.

VB: What's the most important decision you've made?
Belluzzo: The structure of the company a year ago was pretty important. When I came to the company, we were in the NAS business as well, we were doing a lot of things, people saw us in a lot of different ways. In some ways we had three channel programs, we had a NAS channel program, we had our storage systems [the non-NAS portion, libraries, etc.] and we had tape drives, and we brought those things together. We're working to build one model because, in today's world, the way you go to market, the effectiveness of the partnerships you have, really is fundamental. It's more than products, so we really have worked hard to build that and commit to having a consistent strategy around how we move forward there.